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Coalition Research Center

The Coalition's Research Center describes the inner workings of the overly complex U.S. shareholder communications and proxy voting system.

Learn More About the U.S. Shareholder Communications and Proxy Voting System

Below are descriptions of how stocks are traded and voted in the United States, the role of proxy advisory firms, and several problems with the mechanics of proxy communications and voting at annual and special shareholder meetings.

The "street name" system in the United States facilitates the efficient processing of securities transactions by transferring shares among institutions on behalf of "beneficial owners," who are the underlying owners of the securities. However, this system does not permit direct communications between beneficial owners and the public companies in which they invest.

Shareholders who purchase common stock in a public company are able to vote on major decisions affecting the company. As a practical matter, many shareholders are not able to attend shareholder meetings and cast their vote in person. Therefore, these shareholders must vote by proxy. The U.S. Securities and Exchange Commission (SEC) has enacted rules and regulations regarding the proxy voting process.

A problem within the shareholder voting system involves the unique role of proxy advisory firms. These firms exert outsized influence in corporate elections, but they are not subject to adequate disclosure requirements or regulatory oversight with respect to their ability to control or influence the outcome of a shareholder vote.

A number of problems exist in the proxy voting system. Examples include "empty voting," the use of cash-settled equity swaps, and the difficulties in reconciling street name shares with voting entitlements at both the nominee and investor level.

Communications between public companies and their shareholders are an essential component of corporate governance. Unfortunately, companies do not have the ability to communicate directly with the beneficial owners of their shares held in "street name," and instead must communicate with these shareholders through a circuitious, cumbersome, and expensive system.

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